In instances that an external secured funder or lender has grounds to believe that a business is displaying signs of entering into financial difficulties or even insolvency, they are entitled to carry out an Independent Business Review (IBR.)
In this guide, Clarke Bell looks in more detail at what an Independent Business Review is and what this can mean for your business.
What is an Independent Business Review?
An IBR is typically initiated when an external party has legitimate concerns that a borrower is struggling financially or facing insolvency. The types of party most likely to carry out an IBR are therefore banks, lenders or stakeholders in the business.
An IBR can be requested by either an existing lender or by a potential one. For example, an IBR might be requested by a bank before they agree to lend money to a company.
The review can be carried out by either qualified accountants or an Insolvency practitioner. These are chosen at the will of the party instigating the IBR. The purpose is for the accountants or IP to provide the lender with an unbiased overview of the company’s financial situation. The review also offers an informed insight into the future trading forecast of the company and its overall business model and financial strategy.
The review offers an analysis of the company’s management strengths and weaknesses, giving recommendations for areas that need to be addressed.
This is designed to give the lender an accurate insight into the stability of the company and its financial forecast. It will tell the lender whether the company is in a stable position to pay back the money it has borrowed or wishes to borrow at the agreed rate, or if there are areas of concern that need to be addressed.
Although an Independent Business Review is requested by a bank or lender, it is actually the responsibility of the company borrowing the money to pay the fees associated with the process.
The cost of an IBR will vary from case to case and depend on the time the accountants will spend on the review, however the cost will always be agreed before the review is carried out.
What does an Independent Business Review look at?
An IBR will vary from company to company. However, the review will typically focus on a number of general factors as well as any particular concerns the lender has flagged.
The review will look at any risks that the company faces based on the industry they are part of, as well as looking at its past, track record and what future plans it holds.
The reviewer will analyse the company’s current financial position, which usually takes the form of a Statement of Affairs. Here, the company’s current balance sheet is assessed. The reviewer will analyse factors such as the speed at which the company collects debts from its customers and clients and how quickly it pays creditors.
The review will also look at things such as the company’s cash flow and the assets and liabilities it holds. By analysing the company’s current profit and losses, the reviewer will identify any issues with profitability and cash flow.
The reviewer will also analyse the company’s operations as well as its current position in the market.
Finally, if appropriate the reviewer will carry out an assessment of the group structure.
For this reason, if your business is facing an IBR, you will be required to pull together the following information:
- A balance sheet
- Risk to asset values
- Company profit
- Cash flow projections
- Financial strategies
- Business plan
- Marketing plan
- Management plan on how to deal with potential threats
- Ability of management
- Any management gaps and potential improvements
- Place in the marketplace and competition
- Group structure
- Bank security cover
The overall aim of the Independent Business Review is to give an overview of how stable the company is at present, how secure the bank’s lending is/will be, and how secure lending would be if the company was to enter into administration or liquidation.
What happens after the Independent Business Review?
Once the accountant has carried out an investigation into the company, they will proceed to compile a formal written report. This report usually lays out number of recommendations for the company.
The report is discussed between company directors, the lender and the reviewer.
The result of the review can be that the bank is either assured that they can safely lend to your company. It might mean that the lender stops your line of credit or asks for additional measures on any further borrowing by asking the director to sign a personal guarantee for example. Read more about personal liability during liquidation in our guide.
Furthermore, the review might recommend that further investigations take place if there is a particular area that the accountant has noted concern over.
In some cases, the review may highlight red flags which can lead to restructuring measures being put into place with the aim of protecting the future of the company.
Typically, in order for the lender to continue its support to the company, any recommendations that were laid out in the report should be implemented.
How Clarke Bell can help
An Independent Business review is very useful when it comes to securing funding and understanding the financial position of your company.
If problems or concerns have been identified with your business in the review, however, it is crucial that you act on them. Thankfully, Clarke Bell is here to help.
Whether you are looking for options for business rescue or want to know more about restructuring your business, Clarke Bell has a team of experts with over 25 years’ experience in the industry.
We will work closely with you to offer our expert advice and discuss what options are open to you. To find out how we can help simply get in touch today.